NOK: FX market expecting dovish Norges Bank - BNPP

The Norges Bank is likely to be dovish: core inflation is at a 4y low and crude prices are at 2017 lows, feels the analysis team at BNP Paribas. However, BNPP FX positioning analysis signals FX markets are already likely positioned for this. 

Key Quotes

“EURNOK is trading near its 2017 highs as crude prices continue to fall to new lows. The Norges Bank meet Thursday and we think the risk is that they strike a more dovish tone, with core inflation currently at a 4-year low. On a more dovish than expected outcome, the NOK is likely to weaken. However, BNP Paribas FX Positioning Analysis signals the market’s largest short G10 FX position is currently held in the NOK, signalling that the FX market is already pricing – to some extend – in a dovish Norges Bank outcome. Hence, the extent of NOK weakness should be relatively contained.”  

“Looking ahead, our BNP Paribas short term fair value model STEER™ signals that EURNOK has the highest oil sensitivity among G10 currency pairs and crosses. Our commodity strategy team continue to forecast a rebound in crude prices, which against a backdrop of short NOK positioning would likely see EURNOK move back towards 9.40.”